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The Full Information Maximum Likelihood Procedure for Inference on Cointegration - with Applications

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Author Info
Søren Johansen (Institute of Mathematical Statistics, University of Copenhagen)
Katarina Juselius (Institute of Economics, University of Copenhagen)

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Abstract

This paper gives a systematic application of maximum likelihood inference concerning cointegration vectors in non-stationary vector valued autoregressive time series models with Gaussian errors, where the model includes a constant term and seasonal dummies. The hypothesis of cointegration is given a simple parametric form in terms of cointegration vectors and their weights. The relation between the constant term and a linear trend in the non-stationary part of the process is discussed and related to the weights. Tests for the presence of cointegration vectors, both with and without a linear trend in the non-stationary part of the process are derived. Then estimates and tests under linear restrictions on the cointegration vectors and their weights are given. The methods are illustrated by data from the Danish and the Finnish economy on the demand for money.

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Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 89-11.

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Length: 43 pages
Date of creation: Mar 1989
Date of revision:
Publication status: Published as: "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money", in: Oxford Bulletin of Economics and Statistics, 1990, 52(2), pp. 169-210
Handle: RePEc:kud:kuiedp:8911

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Related research
Keywords: cointegration; error correction; maximum likelihood estimation; likelihood ratio test; vector autoregressive processes; money demand; Denmark; Finland;

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  2. Funding la Cour, Lisbeth, 1999. "A Component-Based Analysis Of The Danish Long-Run Money Demand Relation," Working Papers 06-1999, Copenhagen Business School, Department of Economics. [Downloadable!]
  3. Geraint Johnes, 2000. "Up Around the Bend: linear and nonlinear models of the UK economy compared," International Review of Applied Economics, Taylor and Francis Journals, vol. 14(4), pages 485-493, October. [Downloadable!] (restricted)
  4. Erwin Nijsse & Elmer Sterken,, 1996. "Shortages, interest rates, and money demand in Poland, 1969-1995," Working Papers 25, Centre for Economic Research, University of Groningen and University of Twente. [Downloadable!]
  5. Javier Gómez P., 1998. "La Demanda Por Dinero En Colombia," BORRADORES DE ECONOMIA 002969, BANCO DE LA REPÚBLICA. [Downloadable!]
  6. Raymond Y.C. Tse, John Raftery, 2001. "The effects of money supply on construction flows," Construction Management & Economics, Taylor and Francis Journals, vol. 19(1), pages 9-17, January. [Downloadable!] (restricted)
  7. Ebrima Faal, 2006. "Growth and Productivity in Papua New Guinea," IMF Working Papers 06/113, International Monetary Fund. [Downloadable!]
  8. Vogelvang, E., 1990. "Testing for co-integration with spot prices of some related agricultural commodities," Serie Research Memoranda 0001, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
  9. Royfaizal, R. C & Lee, C & Mohamed , Azali, 2007. "Asean-5+3 And Us Stock Markets Interdependence Before, During And After Asian Financial Crisis," MPRA Paper 10263, University Library of Munich, Germany. [Downloadable!]
  10. Amano, Robert & Coletti , Don & Murchison , Stephen, 2000. "Empirical Estimation and the Quarterly Projection Model: An Example Focusing on the External Sector," Working Paper Series 104, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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